Charter Financial Announces First Quarter Fiscal 2017 Earnings of $5.0 Million

Print
| Source: Charter Financial Corporation
  • CBS acquisition positively impacts first-quarter results
  • Basic and diluted EPS of $0.36 and $0.33 for the quarter
  • Year over year increase of $3.0 million in net interest income
  • Nonperforming assets at 0.27% of total assets at December 31, 2016
  • Tangible book value per share of $11.52 at December 31, 2016

WEST POINT, Ga., Jan. 26, 2017 (GLOBE NEWSWIRE) -- Charter Financial Corporation (the “Company”) (NASDAQ:CHFN) today reported net income of $5.0 million for the quarter ended December 31, 2016, or $0.36 and $0.33 per basic and diluted share, respectively, compared with net income of $4.6 million, or $0.31 and $0.30 per basic and diluted share, respectively, for the quarter ended December 31, 2015.

Net income for the current-year quarter increased $431,000 over the prior-year quarter. Driving factors were increases in loan interest income and deposit fee income from the acquisition of Community Bank of the South ("CBS"), a negative provision of $750,000 and several large gains on the sales of other real estate owned ("OREO"). These increases were partially offset by $2.9 million of recoveries on loans previously covered by FDIC loss sharing agreements taken to income in the prior year.

Quarterly Operating Results

Quarterly earnings for the first quarter of fiscal 2017 compared with the first quarter of fiscal 2016 were positively impacted by:

  • An increase in loan interest income of $3.1 million, or 33.1%, and an increase in loan interest income excluding accretion of acquired loan discounts of $3.6 million, or 43.2%, partly due to the acquisition of CBS and also due to $220,000 of interest income recorded on the payoff of two long-standing nonperforming loans.
  • A negative provision of $750,000 related to continued net recoveries of $878,000 during the quarter, and positive asset quality, versus no such provision in the same period last year.
  • An increase in deposit and bankcard fee income of $272,000, or 9.4%.
  • An increase in gain on sale of loans of $383,000, or 110.2%, due to improved mortgage activity in legacy markets and the newly acquired market.
  • An increase in net benefit of operations of real estate owned of $338,000 due to $444,000 of gains on sale of OREO, most of which had been written down to market value during the economic downturn.

Quarterly earnings for the first quarter of fiscal 2017 compared with the first quarter of fiscal 2016 were negatively impacted by:

  • An increase in interest expense on deposits of $493,000, or 74.1%, due to higher balances from both legacy accounts and those acquired through the CBS acquisition.
  • An increase in salaries and employee benefits of $871,000, or 16.5%, due to higher payroll related to the CBS acquisition.
  • Recoveries on loans formerly covered by loss sharing agreements decreased $2.6 million due to several large recoveries during the prior year.

Chairman and CEO Robert L. Johnson said, “The CBS acquisition continued to make a positive impact on our results in the first quarter. Additionally, our historically conservative nature benefited us during the quarter, as we improved our asset quality while seeing the benefit of net recoveries on formerly charged off loans and interest, gains on the sales of OREO and a negative provision. While these recovery trends may continue, it will probably not be at the same remarkable rate."

Financial Condition

Total assets increased $23.3 million to $1.5 billion at December 31, 2016, from $1.4 billion at September 30, 2016, largely attributable to a $40.0 million increase in cash and cash equivalents, driven by increases in deposits and paydowns of loans and investment securities held for sale. Net loans decreased $3.4 million, or 0.3%, to $990.6 million at December 31, 2016, from $994.1 million at September 30, 2016, primarily the result of paydowns.

At December 31, 2016, total deposits increased $24.5 million to $1.2 billion; transaction and money market accounts increased $3.8 million and $22.5 million, respectively.

From September 30, 2016 to December 31, 2016, total stockholders' equity increased to $205.5 million compared to $203.1 million due primarily to $5.0 million of net income, partially offset by a $2.9 million decrease in accumulated other comprehensive income on the Company's portfolio of investment securities available for sale. The decrease in accumulated other comprehensive income was driven by market interest rate changes since the November presidential election. The Company's evaluation of its securities portfolio at December 31, 2016 determined there was no new other-than-temporary impairment in the portfolio. Book value per share increased to $13.67 while tangible book value per share increased from $11.36 to $11.52, both due to our retention of earnings.

Net Interest Income and Net Interest Margin

Net interest income increased to $12.2 million for the quarter ended December 31, 2016, compared with $9.2 million for the quarter ended December 31, 2015. Interest income increased $3.4 million due to a $3.6 million increase in loan interest income, excluding accretion of acquired loan discounts. The change was largely due to higher average balances from the acquisition of CBS completed in the third quarter of fiscal 2016, offset by a $446,000 decrease in net purchase discount accretion. Quarter over quarter, total interest expense increased $448,000 to $1.7 million for the quarter ended December 31, 2016, largely due to increased balances of higher-costing deposits from CBS, as well as $121,000 of interest expense on the Company's subordinated debentures assumed in the CBS acquisition. These increases were offset partially by a $166,000 decline in interest expense on FHLB borrowings due to a maturing advance being extended at a substantially lower rate in May 2016.

Net interest margin was 3.71% for the three months ended December 31, 2016, compared to 4.03% for the same period in 2015. The decrease was largely due to increased deposit balances, both from legacy growth and the acquisition of CBS, as well as a continued drop in accretion income. The Company's net interest margin, excluding the effects of purchase accounting, decreased to 3.48% for the quarter ended December 31, 2016, compared with 3.51% for the quarter ended December 31, 2015.

Under purchase accounting rules, the Company currently expects to realize remaining loan discount accretion of $270,000 over the next three quarters related to its acquisition of the First National Bank of Florida and $2.1 million related to the CBS acquisition over the life of the loans acquired.

Mr. Johnson continued, "Although we've reached a point in the credit and interest rate cycle where it would be easy to add risk into our balance sheet, we will strive to maintain our conservative appetite to risk, working to build a healthy loan portfolio while maintaining a modest credit and interest rate risk profile."

Provision for Loan Losses

The Company recorded a negative provision for loan losses of $750,000 in the quarter ended December 31, 2016 due to the continued positive credit quality trends of its loan portfolio and net recoveries of previously charged-off loans. No provision was recorded in the three months ended December 31, 2015.

Noninterest Income and Expense

Noninterest income for the quarter ended December 31, 2016 decreased to $5.0 million, compared with $6.8 million for the prior-year period. The prior-year quarter included $2.9 million in recoveries on loans formerly covered by loss sharing agreements, while the current-year quarter included only $250,000, a decrease of $2.6 million. The current-year quarter included increases in core components of $272,000 in bankcard fee and other deposit fee income and $383,000 in gain on sale of loans.

Noninterest expense for the quarter ended December 31, 2016 increased $1.2 million to $10.3 million, compared with $9.1 million for the prior-year period, due in part to increases of $871,000 in salaries and employee benefits and $266,000 in occupancy, both of which were attributable to increased ongoing operational costs from the CBS acquisition. These increases were partially offset by an increase in the net benefit of operations of real estate owned of $338,000 to $359,000 as a result of several large gains on the sales of other real estate owned.

Asset Quality

Nonperforming assets at December 31, 2016 were at 0.27% of total assets, down from 0.45% at September 30, 2016, due to payoffs of two long-standing, high-balance, non-performing loans. The allowance for loan losses was at 1.05% of total loans and 594.81% of nonperforming loans at December 31, 2016, compared to 1.03% and 277.66%, respectively, at September 30, 2016. Not included in the allowance is $2.1 million in yield and credit discounts on the CBS acquired loans. At December 31, 2016, the allowance for loan losses was 1.30% of legacy loans, compared to 1.35% at September 30, 2016. The Company recorded net loan recoveries of $878,000 in its allowance for loan losses for the quarter ended December 31, 2016, compared with net loan recoveries of $207,000 for the quarter ended December 31, 2015.

Capital Management

Beginning with the first quarter of fiscal 2014 through the first quarter of fiscal 2017, the Company repurchased 8.1 million shares, or 35.6%, of its common stock, for $91.9 million. The Company repurchased 150 shares during the quarter ended December 31, 2016. On January 24, 2017, the Company announced an increased dividend of $0.06 per share, the second consecutive quarterly increase after a $0.05 per share dividend was announced in the previous 14 quarters.

Mr. Johnson concluded, “The CBS acquisition has enhanced our leverage of capital and expense structures, and we've seen significant improvements in our return on assets and return on equity, at 1.39% and 9.84%, respectively, at the end of the first quarter of fiscal 2017. These returns allow us to continue our focus on organic and potential acquisitive growth. We continue to seek potential acquisitions that are additive to our existing franchise and will maximize returns to our shareholders."

About Charter Financial Corporation

Charter Financial Corporation is a savings and loan holding company and the parent company of CharterBank, a full-service community bank and a federal savings institution. CharterBank is headquartered in West Point, Georgia, and operates branches in Metro Atlanta, the I-85 corridor south to Auburn, Alabama, and the Florida Gulf Coast. CharterBank's deposits are insured by the Federal Deposit Insurance Corporation. Investors may obtain additional information about Charter Financial Corporation and CharterBank on the internet at www.charterbk.com under About Us.

Forward-Looking Statements

This release may contain “forward-looking statements” within the meaning of the federal securities laws. These statements may be identified by use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “intend,” “strive,” “probably,” “focused on,” “estimated,” “working on,” “continue to,” “seek,” "leverage," and “potential.” Examples of forward-looking statements include, but are not limited to, statements regarding future growth, profitability, expense reduction, improvements in income and margins, increasing stockholder value, and estimates with respect to our financial condition and results of operation and business that are subject to various factors that could cause actual results to differ materially from these estimates. These factors include but are not limited to the Company's inability to implement its business strategy; general and local economic conditions; changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, and competition; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or deposit levels necessitating an increase in borrowing to fund loans and investments; the changing exposure to credit risk; the inability to identify suitable future acquisition targets; the potential inability to effectively manage the new businesses and lending teams that transitioned from Community Bank of the South; the inability to properly leverage the expansion into the North Atlanta market; changes in legislation or regulation; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products, and services; the effect of cyberterrorism and system failures; and the effects of geopolitical instability and risks such as terrorist attacks, the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes, and the effect of any damage to our reputation resulting from developments relating to any of the factors listed herein. Any or all forward-looking statements in this release and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or known or unknown risks and uncertainties. Consequently, no forward-looking statements can be guaranteed. Except as required by law, the Company disclaims any obligation to subsequently revise or update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained from time to time in the Company's filings with the Securities and Exchange Commission. The Company refers you to the section entitled “Risk Factors” contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2016. Copies of each filing may be obtained from the Company or the Securities and Exchange Commission.

The risks included here are not exhaustive and undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to the Company, its management, or persons acting on their behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law.

Charter Financial Corporation
Condensed Consolidated Statements of Financial Condition (unaudited)
 
  December 31,
2016
 September 30,
2016
(1)
Assets
     
Cash and amounts due from depository institutions $15,234,277  $14,472,867 
Interest-earning deposits in other financial institutions 116,614,291  77,376,632 
Cash and cash equivalents 131,848,568  91,849,499 
Loans held for sale, fair value of $3,290,098 and $2,991,756 3,235,852  2,941,982 
Certificates of deposit held at other financial institutions 12,256,580  14,496,410 
Investment securities available for sale 196,278,652  206,336,287 
Federal Home Loan Bank stock 3,361,800  3,361,800 
Restricted securities, at cost 279,000  279,000 
Loans receivable 1,002,346,206  1,005,702,737 
Unamortized loan origination fees, net (1,211,828) (1,278,830)
Allowance for loan losses (10,499,228) (10,371,416)
Loans receivable, net 990,635,150  994,052,491 
Other real estate owned 2,160,694  2,706,461 
Accrued interest and dividends receivable 3,579,205  3,442,051 
Premises and equipment, net 28,291,503  28,078,591 
Goodwill 29,793,756  29,793,756 
Other intangible assets, net of amortization 2,485,947  2,639,608 
Cash surrender value of life insurance 49,601,324  49,268,973 
Deferred income taxes 5,849,030  4,366,522 
Other assets 2,009,914  4,775,805 
Total assets $1,461,666,975  $1,438,389,236 
Liabilities and Stockholders’ Equity
     
Liabilities:    
Deposits $1,186,346,952  $1,161,843,586 
Long-term borrowings 50,000,000  50,000,000 
Floating rate junior subordinated debt 6,621,823  6,587,549 
Advance payments by borrowers for taxes and insurance 1,211,165  2,298,513 
Other liabilities 11,986,812  14,510,052 
Total liabilities 1,256,166,752  1,235,239,700 
Stockholders’ equity:    
Common stock, $0.01 par value; 15,030,926 shares issued and outstanding at December 31,
2016 and 15,031,076 shares issued and outstanding at September 30, 2016
 150,309  150,311 
Preferred stock, $0.01 par value; 50,000,000 shares authorized at December 31, 2016 and
September 30, 2016
    
Additional paid-in capital 84,182,259  83,651,623 
Unearned compensation – ESOP (4,673,761) (5,106,169)
Retained earnings 127,615,344  123,349,890 
Accumulated other comprehensive (loss) income (1,773,928) 1,103,881 
Total stockholders’ equity 205,500,223  203,149,536 
Total liabilities and stockholders’ equity $1,461,666,975  $1,438,389,236 

__________________________________

(1) Financial information at September 30, 2016 has been derived from audited financial statements.



Charter Financial Corporation
Condensed Consolidated Statements of Income (unaudited)
 
 Three Months Ended
 December 31,
 2016 2015
Interest income:   
Loans receivable$12,569,903  $9,441,525 
Taxable investment securities1,095,900  946,510 
Nontaxable investment securities4,571   
Federal Home Loan Bank stock39,210  38,928 
Interest-earning deposits in other financial institutions110,817  12,391 
Certificates of deposit held at other financial institutions42,629   
Restricted securities2,573   
Total interest income13,865,603  10,439,354 
Interest expense:   
Deposits1,158,316  665,433 
Borrowings386,975  552,882 
Floating rate junior subordinated debt120,792   
Total interest expense1,666,083  1,218,315 
Net interest income12,199,520  9,221,039 
Provision for loan losses(750,000)  
Net interest income after provision for loan losses12,949,520  9,221,039 
Noninterest income:   
Service charges on deposit accounts1,887,810  1,752,558 
Bankcard fees1,282,358  1,145,826 
Gain on investment securities available for sale  35,965 
Bank owned life insurance332,352  320,663 
Gain on sale of loans731,262  347,856 
Brokerage commissions165,996  141,715 
Recoveries on acquired loans previously covered under FDIC loss share agreements250,000  2,875,000 
Other333,067  210,957 
Total noninterest income4,982,845  6,830,540 
Noninterest expenses:   
Salaries and employee benefits6,133,673  5,262,989 
Occupancy1,323,323  1,057,274 
Data processing908,955  824,517 
Legal and professional284,156  379,838 
Marketing356,524  289,575 
Federal insurance premiums and other regulatory fees165,495  223,843 
Net benefit of operations of real estate owned(359,270) (21,243)
Furniture and equipment174,055  168,415 
Postage, office supplies and printing270,385  184,712 
Core deposit intangible amortization expense153,662  48,985 
Other878,549  659,125 
Total noninterest expenses10,289,507  9,078,030 
Income before income taxes7,642,858  6,973,549 
Income tax expense2,597,191  2,359,271 
Net income$5,045,667  $4,614,278 
Basic net income per share$0.36  $0.31 
Diluted net income per share$0.33  $0.30 
Weighted average number of common shares outstanding14,207,468  14,885,529 
Weighted average number of common and potential common shares outstanding15,064,879  15,545,216 




Charter Financial Corporation
Supplemental Financial Data (unaudited)
in thousands except per share data
 
  Quarter to Date  Year to Date
  12/31/2016 9/30/2016 (1) 6/30/2016 3/31/2016 12/31/2015  12/31/2016 12/31/2015
                
Consolidated balance sheet data:               
Total assets $1,461,667  $1,438,389  $1,427,851  $1,051,281  $1,004,880   $1,461,667  $1,004,880 
Cash and cash equivalents 131,849  91,849  106,108  79,331  51,881   131,849  51,881 
Loans receivable, net 990,635  994,052  993,786  701,399  679,870   990,635  679,870 
Other real estate owned 2,161  2,706  3,181  2,711  3,165   2,161  3,165 
Securities available for sale 196,279  206,336  169,737  172,197  175,988   196,279  175,988 
Transaction accounts 481,841  478,028  472,123  353,834  331,570   481,841  331,570 
Total deposits 1,186,347  1,161,844  1,155,245  791,692  744,234   1,186,347  744,234 
Borrowings 56,622  56,588  56,553  50,000  50,000   56,622  50,000 
Total stockholders’ equity 205,500  203,150  199,800  198,031  198,368   205,500  198,368 
                
Consolidated earnings summary:               
Interest income $13,866  $13,822  $13,635  $9,888  $10,439   $13,866  $10,439 
Interest expense 1,666  1,622  1,552  1,237  1,218   1,666  1,218 
Net interest income 12,200  12,200  12,083  8,651  9,221   12,200  9,221 
Provision for loan losses (750) (150) (100)      (750)  
Net interest income after
provision for loan losses
 12,950  12,350  12,183  8,651  9,221   12,950  9,221 
Noninterest income 4,983  4,918  4,703  4,513  6,831   4,983  6,831 
Noninterest expense 10,290  11,354  15,064  9,903  9,079   10,290  9,079 
Income tax expense 2,597  2,103  527  1,118  2,359   2,597  2,359 
Net income $5,046  $3,811  $1,295  $2,143  $4,614   $5,046  $4,614 
                
Per share data:               
Earnings per share – basic $0.36  $0.27  $0.09  $0.15  $0.31   $0.36  $0.31 
Earnings per share – fully diluted $0.33  $0.26  $0.09  $0.14  $0.30   $0.33  $0.30 
Cash dividends per share $0.055  $0.050  $0.050  $0.050  $0.050   $0.055  $0.050 
                
Weighted average basic shares 14,207  14,186  14,185  14,225  14,886   14,207  14,886 
Weighted average diluted shares 15,065  14,798  14,842  14,910  15,545   15,065  15,545 
Total shares outstanding 15,031  15,031  15,031  15,026  15,229   15,031  15,229 
                
Book value per share $13.67  $13.52  $13.29  $13.18  $13.03   $13.67  $13.03 
Tangible book value per share (2) $11.52  $11.36  $11.11  $12.89  $12.73   $11.52  $12.73 

__________________________________

(1) Financial information at and for the year ended September 30, 2016 has been derived from audited financial statements.
(2) Non-GAAP financial measure, calculated as total stockholders' equity less goodwill and other intangible assets divided by period-end shares outstanding.



Charter Financial Corporation
Supplemental Information (unaudited)
dollars in thousands
 
  Quarter to Date  Year to Date
  12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015  12/31/2016 12/31/2015
                
Loans receivable:               
1-4 family residential real estate $223,609  $236,940  $234,346  $190,180  $182,297   $223,609  $182,297 
Commercial real estate 595,207  595,157  586,082  392,946  396,023   595,207  396,023 
Commercial 73,182  71,865  64,700  43,741  39,836   73,182  39,836 
Real estate construction 79,136  80,500  104,389  72,323  61,816   79,136  61,816 
Consumer and other 31,212  21,241  15,638  13,205  10,715   31,212  10,715 
Total loans receivable $1,002,346  $1,005,703  $1,005,155  $712,395  $690,687   $1,002,346  $690,687 
                
Allowance for loan losses:               
Balance at beginning of period $10,371  $10,118  $9,850  $9,695  $9,489   $10,371  $9,489 
Charge-offs (50) (1) (7) (205) (15)  (50) (15)
Recoveries 928  404  375  360  221   928  221 
Provision (750) (150) (100)      (750)  
Balance at end of period $10,499  $10,371  $10,118  $9,850  $9,695   $10,499  $9,695 
                
Nonperforming assets: (1)               
Nonaccrual loans $1,527  $3,735  $3,371  $2,098  $2,463   $1,527  $2,463 
Loans delinquent 90 days or greater
and still accruing
 238      52  14   238  14 
Total nonperforming loans 1,765  3,735  3,371  2,150  2,477   1,765  2,477 
Other real estate owned 2,161  2,706  3,181  2,711  3,165   2,161  3,165 
Total nonperforming assets $3,926  $6,441  $6,552  $4,861  $5,642   $3,926  $5,642 
                
Troubled debt restructuring:               
Troubled debt restructurings - accruing $4,761  $4,585  $4,999  $7,267  $7,265   $4,761  $7,265 
Troubled debt restructurings -
nonaccrual
 192  1,760  1,716  332  317   192  317 
Total troubled debt restructurings $4,953  $6,345  $6,715  $7,599  $7,582   $4,953  $7,582 

__________________________________

(1) Loans being accounted for under purchase accounting rules which have associated accretion income established at the time of acquisition remaining to recognize, that were greater than 90 days delinquent or otherwise considered nonperforming loans are excluded from this table.



Charter Financial Corporation
Supplemental Information (unaudited)
 
  Quarter to Date  Year to Date
  12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015  12/31/2016 12/31/2015
                
Return on equity (annualized) 9.84% 7.55% 2.61% 4.32% 8.97%  9.84% 8.97%
Return on assets (annualized) 1.39% 1.07% 0.38% 0.83% 1.83%  1.39% 1.83%
Net interest margin (annualized) 3.71% 3.82% 3.97% 3.72% 4.03%  3.71% 4.03%
Net interest margin, excluding the effects of purchase accounting (1) 3.48% 3.47% 3.53% 3.36% 3.51%  3.48% 3.51%
Holding company tier 1 leverage ratio (2) 12.83% 12.68% 12.60% 18.89% 19.29%  12.83% 19.29%
Holding company total risk-based capital ratio (2) 17.55% 16.74% 15.93% 25.11% 25.89%  17.55% 25.89%
Bank tier 1 leverage ratio (3) 11.70% 11.51% 11.32% 17.13% 17.19%  11.70% 17.19%
Bank total risk-based capital ratio 16.06% 15.26% 14.99% 22.98% 23.23%  16.06% 23.23%
Effective tax rate 33.98% 35.56% 28.91% 34.28% 33.83%  33.98% 33.83%
Yield on loans 5.01% 5.07% 5.20% 5.03% 5.33%  5.01% 5.33%
Cost of deposits 0.46% 0.46% 0.43% 0.42% 0.42%  0.46% 0.42%
                
Asset quality ratios: (4)               
Allowance for loan losses as a % of total loans (5) 1.05% 1.03% 1.00% 1.38% 1.40%  1.05% 1.40%
Allowance for loan losses as a % of nonperforming loans 594.81% 277.66% 300.10% 458.13% 391.42%  594.81% 391.42%
Nonperforming assets as a % of total loans and OREO 0.39% 0.64% 0.65% 0.68% 0.81%  0.39% 0.81%
Nonperforming assets as a % of total assets 0.27% 0.45% 0.46% 0.46% 0.56%  0.27% 0.56%
Net charge-offs (recoveries) as a % of average loans (annualized) (0.35)% (0.16)% (0.15)% (0.09)% (0.12)%  (0.35)% (0.12)%

__________________________________

(1) Net interest income excluding accretion and amortization of acquired loans divided by average net interest earning assets excluding average loan accretable discounts, a non-GAAP measure, in the amount of $2.9 million, $3.8 million, $4.7 million, $2.0 million, and $3.1 million for the quarters ended December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively.
(2) Current period holding company capital ratios are estimated as of the date of this earnings release.
(3) During the quarter ended June 30, 2016, a net downstream of capital was made between the holding company and the bank in the amount of $6.1 million as part of the Company's acquisition of CBS.
(4) Ratios for the three months ended December, 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015 include all assets with the exception of FAS ASC 310-30 loans that are excluded from nonperforming loans due to the ongoing recognition of accretion income established at the time of acquisition.
(5) Accounting requirements for the third quarter 2016 acquisition of CBS have affected the comparability of the allowance for loan losses as a percentage of loans. Excluding former CBS loans totaling $191.9 million, $236.4 million and $264.7 million at December 31, 2016, September 30, 2016, and June 30, 2016, respectively, which were recorded at acquisition date fair value, the allowance approximated 1.30%, 1.35% and 1.37% of all other loans at December 31, 2016, September 30, 2016, and June 30, 2016, respectively.



Charter Financial Corporation
Average Balances, Interest Rates and Yields (unaudited)
dollars in thousands
 
 Quarter to Date
 12/31/2016 12/31/2015
 Average
Balance
 Interest Average
Yield/Cost
(10)
 Average
Balance
 Interest Average
Yield/Cost
(10)
Assets:           
Interest-earning assets:           
Interest-earning deposits in other financial institutions$99,268  $111  0.45% $23,371  $12  0.21%
Certificates of deposit held at other financial institutions13,351  43  1.28       
FHLB common stock and other equity securities3,362  39  4.67  3,078  39  5.06 
Taxable investment securities195,131  1,096  2.25  180,573  946  2.10 
Nontaxable investment securities (1)1,597  5  1.14       
Restricted securities279  3  3.69       
Loans receivable (1)(2)(3)(4)1,003,322  11,846  4.72  707,926  8,273  4.67 
Accretion, net, of acquired loan discounts (5)  723  0.29    1,169  0.86 
Total interest-earning assets1,316,310  13,866  4.21  914,948  10,439  4.56 
Total noninterest-earning assets134,572      94,441     
Total assets$1,450,882      $1,009,389     
Liabilities and Equity:           
Interest-bearing liabilities:           
Interest bearing checking$251,070  $86  0.14% $177,536  $55  0.12%
Bank rewarded checking51,752  26  0.20  46,705  23  0.20 
Savings accounts62,157  6  0.04  50,390  4  0.03 
Money market deposit accounts255,332  194  0.30  130,890  75  0.23 
Certificate of deposit accounts380,962  846  0.89  232,011  508  0.88 
Total interest-bearing deposits1,001,273  1,158  0.46  637,532  665  0.42 
Borrowed funds50,000  387  3.10  51,630  553  4.28 
Floating rate junior subordinated debt6,599  121  7.32       
Total interest-bearing liabilities1,057,872  1,666  0.63  689,162  1,218  0.71 
Noninterest-bearing deposits172,247      103,433     
Other noninterest-bearing liabilities15,775      10,916     
Total noninterest-bearing liabilities188,022      114,349     
Total liabilities1,245,894      803,511     
Total stockholders' equity205,021      205,878     
Total liabilities and stockholders' equity$1,450,915      $1,009,389     
Net interest income  $12,200      $9,221   
Net interest earning assets (6)  $258,438      $225,786   
Net interest rate spread (7)    3.58%     3.85%
Net interest margin (8)    3.71%     4.03%
Net interest margin, excluding the effects of purchase accounting (9)    3.48%     3.51%
Ratio of average interest-earning assets to average interest-bearing liabilities    124.43%     132.76%

__________________________________

(1) Tax exempt or tax-advantaged securities and loans are shown at their contractual yields and are not shown at a tax equivalent yield.
(2) Includes net loan fees deferred and accreted pursuant to applicable accounting requirements.
(3) Interest income on loans is interest income as recorded in the income statement and does not include interest income on nonaccrual loans.
(4) Interest income on loans excludes discount accretion and amortization of the indemnification asset.
(5) Accretion of accretable purchase discount on loans acquired.
(6) Net interest-earning assets represent total average interest-earning assets less total average interest-bearing liabilities.
(7) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(8) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(9) Net interest margin, excluding the effects of purchase accounting, a non-GAAP measure, represents net interest income excluding accretion and amortization of acquired loans receivable as a percentage of average net interest earning assets excluding loan accretable discounts in the amount of $2.9 million and $3.1 million for the quarters ended December 31, 2016 and December 31, 2015, respectively.
(10) Annualized.

Charter Financial Corporation
Reconciliation of Non-GAAP Measures (unaudited)

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Charter Financial management uses non-GAAP financial measures, including loans receivable income excluding accretion, net interest margin excluding the effects of purchase accounting, and tangible book value per share, in its analysis of the Company's performance. Loans receivable income excluding accretion excludes the following from loans receivable income: accretion from purchase discounts related to acquired loans. Net interest margin excluding the effects of purchase accounting excludes the following from net interest margin: net purchase discount accretion and the average balance of purchase discounts. Tangible book value per share excludes the following from book value per share: the balance of goodwill and other intangible assets.

Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company and provide meaningful comparison to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

  For the Quarters Ended
  12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Loans Receivable Income Excluding Accretion          
Loans receivable income $12,569,903  $12,680,420  $12,563,466  $8,863,437  $9,441,525 
Net purchase discount accretion 724,109  1,090,886  1,278,040  833,179  1,168,982 
Loans receivable income excluding accretion (Non-GAAP) $11,845,794  $11,589,534  $11,285,426  $8,030,258  $8,272,543 
           
Net Interest Margin Excluding the Effects of Purchase Accounting          
Net Interest Margin 3.71% 3.82% 3.97% 3.72% 4.03%
Effect to adjust for net purchase discount accretion (0.23) (0.35) (0.44) (0.36) (0.52)
Net interest margin excluding the effects
of purchase accounting (Non-GAAP)
 3.48% 3.47% 3.53% 3.36% 3.51%
           
Tangible Book Value Per Share          
Book value per share $13.67  $13.52  $13.29  $13.18  $13.03 
Effect to adjust for goodwill and other intangible assets (2.15) (2.16) (2.18) (0.29) (0.30)
Tangible book value per share (Non-GAAP) $11.52  $11.36  $11.11  $12.89  $12.73 

 

Contact:
Robert L. Johnson, Chairman & CEO
Curt Kollar, CFO
706-645-1391
bjohnson@charterbank.net or
ckollar@charterbank.net

Dresner Corporate Services
Steve Carr
312-780-7211
scarr@dresnerco.com